Economics Is Hard And Then You Die

Michael Wade at The Examiner:

A senior research economist with the Federal Reserve Bank of Richmond, Mr. Kartik Athreya, recently penned an essay “to open-minded consumers of the economics blogosphere” in which he argued that bloggers, and other economics writers, who portray macro-economic policy as simple matters are doing us all a disservice. In short (with apologies to Douglas Adams), Athreya asserts that “Economics is hard. Really hard. You just won’t believe how vastly hugely mindboggingly hard it is. I mean you may think doing the Sunday Times crossword is difficult, but that’s just peanuts to economics. And because it is so hard, people shouldn’t blithely go shooting their mouths off about it, and pretending like it’s so easy.  In fact, we would all be better off if we just ignored these clowns.”

Or at least, that’s what I took from it anyway.

As examples, he specifically cites not only Matt Yglesias, John Stossel, Robert Samuelson and Robert Reich, but also the hugely popular Paul Krugman and Brad DeLong. For the most part, these are leading lights of the politically liberal point of view, but Athreya’s critique does not appear to be aimed at either left or right commentators. Instead, he questions why we should listen to anyone who assumes complicated economic matters can be so easily dispensed with:

But why should it be otherwise? Why should anyone accept uncritically that Economics, or any field of human endeavor, for that matter, should be easy either to process or contribute to?  To some extent, people don’t. Would anyone tolerate the equivalent level of public discussion on cancer research? Most of us readily accept the proposition that Oncology requires training, and rarely give time over to non-medical-professionals’ musings. Do we expect advances in cell-biology to be immediately accessible to anyone with even a college degree? Science journalists routinely cite specific studies that have appeared in specific journals. They generally do not engage in passing their own untrained speculations off as insights. But economic blogging and much journalism largely does not operate this way. Naifs write books, and sell many of them too. People as varied as Matt Ridley and William Greider make book-length statements about economics. I’ve never done that, and this is my job. This is, to say the very least, bizarre.

Although there is a bit of a “don’t cast pearls before swine” attitude to his essay, as someone who likes to write about and analyze economics, I think Athreya has a good point. It certainly isn’t uncommon for writers such as myself (not to mention those with vastly more expertise than I) to opine about economic policy in a way that assumes certain underlying premises are unassailable fact, rather than difficult and sometimes contentious theory. Whether it’s a discussion of how the Community Reinvestment Act is responsible for the collapse of Wall Street, or why universal health care would boost our GDP in the long-term, bloggers/writers of both left and right are surely guilty of assuming too much at times.

By the same token, I think Mr. Athreya is missing an important distinction. Although economics lies at the heart of what many of these writers discuss, it is in fact politics that is the real subject. As opposed to laymen arguing the finer points about advances in cell-biology, Yglesias, et al., are making political policy arguments and supporting them with economic reasoning. Even when writers such as Krugman or Delong tackle macro-economic subjects head on, they are typically doing so in order to advance a specific policy position that they prefer, rather than seeking to refine our knowledge about economics itself.

In other words, while the economic principles may be oversimplified to an extent, the same came be said about computer science when arguing the pros and cons of owning an Apple or PC. You don’t need to be a computer expert to make a choice.

Mark Thoma:

Let me start by noting that the essay is not even digitized in a convenient form — it is a pdf — and to me that says a lot about the writers knowledge of how the digital world works. Why not make it available in a convenient form (unless the goal is to overcome the fact that federal reserve work cannot be copyrighted by making it difficult to reproduce)?  (This is an irritation more generally, and the Kansas City Fed is the worst. Even the president’s speeches are offered only as pdfs — and they are locked to prevent copying — rather than in a more convenient digital form. Are they trying to discourage this information from more general circulation? If so, why?) [Update: I added a few follow up comments on pdfs at the end of the post.]

Scott Sumner:

That’s right; no need to pay attention to Gary Becker, John Taylor, Paul Krugman, and all the other quacks who lack Athreya’s sophisticated understanding of the “science” of economics.  BTW, any time someone wields the term ’science’ as a weapon, you pretty much know they are an intellectual philistine.  Am I being defensive yet?

To get serious for a moment, in this essay Athreya is confusing a bunch of unrelated issues:

1.  The style of bloggers; are they polite or not?

2.  The ideology of bloggers

3.  The views of bloggers on methodological issues

4.  Are bloggers competent to opine on important public policy issues?

I don’t recall ever reading a Greg Mankiw post that I didn’t feel knowledgeable enough to write.  On the other hand I’ve read lots of Mankiw posts that I didn’t feel clever enough to write.  That’s an important distinction.  Mankiw is a great economist in the “scientific” tradition, and he’s a great blogger—but for completely different reasons.  He’s a great blogger for the same reason he is a great textbook writer.  There are other bloggers who are also very clever; Krugman, Tyler Cowen, Robin Hanson, Steve Landsburg, Nick Rowe, etc, etc.  Several on that list also wrote textbooks.

I don’t know if Krugman has done a lot of recent research on macro, but he knows enough about the literature to offer an informed opinion.  I often disagree with the views of Krugman, DeLong, Thoma, et al, on fiscal policy, but they can cite highly “scientific” papers by people like Woodford and Eggertsson for all of their fiscal policy views.  There must be dozens of economics bloggers who either teach at elite schools, or have a PhD from elite schools, and who are qualified to comment on current policy issues.

Arnold Kling:

He is suggesting that bloggers supply more noise than signal on economic topics. I understand his point, but I disagree with it.

It is a fair point that it is tempting when writing for an audience that includes non-professionals to try to oversimplify, to make your views sound more well-grounded than they are, and to make others’ views sound sillier than they are. If you read just one economics blogger, you will get that blogger’s prejudices and blind spots along with whatever insights might be on offer.

It is possible, however, for the collective efforts of many bloggers to produce more signal and less noise. That would be the case if the competitive market serves as a check on the more unsound ideas. I am not saying that it works that way, but it might.

Athreya takes the view that the academic process of refereed journals is more rigorous and works well. I do not fully share that view. The peer-reviewed journal process may be the better than anything else someone has come up with, but it is a deeply flawed process. It rewards ritual over substance, and trend-following over originality. The process failed badly in the area of macroeconomics over the past thirty years, an era which I believe Paul Krugman is justified in describing as a Dark Age.

Athreya draws an interesting contrast between reactions to the economic crisis and reactions to natural disasters. He points out that the tsunami in East Asia and the earthquake in Haiti combined to kill hundreds of thousands and to impose hardships on many others that are far worse than what has been inflicted by the recession. Yet neither of those disasters was met by a denunciation of seismology for failing to predict them nor an outpouring of ill-informed speculation about what happened. He may be forgetting the “God’s revenge” explanation proposed for the Haiti earthquake, but his point is well taken.

My pushback would be that economists have claimed to know more about the process of recessions than seismologists have claimed to know about earthquakes and tsunamis. No seismologist has ever said that we have “conquered” such events the way that economists have in the past claim to have conquered the business cycle.

I agree with Athreya that non-economists should express opinions about macroeconomics only with great humility. Where I disagree is that I think that economists, too, need to show humility.

Brad DeLong:

I’m going to duck out of this one, and leave it to Federal Reserve Bank of Minneapolis President Narayana Kocherlakota.

He will explain to Kartik Athreya that someone who has taken a year of Ph.D. coursework in a decent economics department (and passed their Ph.D. qualifying exams) is unlikely to be able to say anything coherent about our current macroeconomic policy dilemmas:

Why do we have business cycles? Why do asset prices move around so much? At this stage, macroeconomics has little to offer by way of answer to these questions. The difficulty in macroeconomics is that virtually every variable is endogenous – but the macro-economy has to be hit by some kind of exogenously specified shocks if the endogenous variables are to move. The sources of disturbances in macroeconomic models are (to my taste) patently unrealistic. Perhaps most famously, most models in macroeconomics rely on some form of large quarterly movements in the technological frontier. Some have collective shocks to the marginal utility of leisure. Other models have large quarterly shocks to the depreciation rate in the capital stock (in order to generate high asset price volatilities). None of these disturbances seem compelling, to put it mildly. Macroeconomists use them only as convenient short-cuts to generate the requisite levels of volatility in endogenous variables…

If Narayana is right, Kartik is wrong. I’m betting on Narayana.

Matthew Yglesias:

I think there’s a lot that’s wrong about Athreya’s essay, much of it explained by Scott Sumner, but most of all I think his argument hinges on two category errors, one about what I’m doing and one about what he’s doing.

First me. Do I have anything interesting to say about economics? Well, “interesting” is relevant to audience. I should hope that PhD economists working in central banking systems aren’t learning about economics from my blog! That’s what grad school, conferences, the circulation of academic papers, etc. is for. But perhaps you’re a citizen of a liberal democracy who speaks English and tries to keep abreast of political controversies. Well you’ve probably heard politicians talking a lot about jobs and the economy. You’ve probably noticed that voters keep telling pollsters that jobs and the economy matter to them. Jobs and the economy may matter to you! You may have seen that political scientists have found that presidential re-election is closely linked to economic performance, and thus deduced that the fate of a whole range of national policy issues hinges on economic growth. Well then I bet you are probably interested in the fact that a wide range of credible experts (with PhDs, even) believe the world’s central banks could be doing more to boost employment. Is Athreya interested in this? Well, I hope he would know it whether or not he reads my blog—he’s working at a central bank somewhere and probably knows a lot more about this than most people.

But now to Athreya. His essay seems to partake of the conceit that what economic policymakers do is just economics and that for political pundits to second-guess their decisions would be on a par with me trying to second-guess someone doing particle physics. Completely apart from the fact that the “science” of economics is a good deal less developed than what you see in real sciences, the fact is that economic policy is economics plus politics. For example, according to Ben Bernanke, the Fed could reduce unemployment by raising its inflation target but this would be a bad idea because it runs the risk of causing inflation expectations to become un-anchored. That’s a judgment that contains some “economics” content but it’s largely a political judgment. It’s part of his job to make those judgments, but it’s the job of citizens to question them.

At any rate, the next time anyone finds me claiming to have broken original ground in macroeconomic theory I hope someone will call the expertise police. But you don’t need a PhD in sociology to see how it might be the case that the Federal Reserve Board of Governors would be unduly attuned to the interests of college educated Americans to the exclusion of the working class, or that the European Central Bank might be unduly attuned to the needs of Germans to the exclusion of Spaniards and Italians.

Tyler Cowen:

My view is a little different than Brad’s.  I would say that economics is really, really, really, really, really, really, really hard.  And that’s leaving out a few of the “reallys.”

It’s so hard that experts don’t always do it well.  The experts are constantly prone to correction by non-experts, by practitioners, by people who are self-educated economic experts but not professional economists, and by people who know some economics and a lot about some other field(s).  It is very often that we — at least some of us — are wrong and at least some of those other people are right.  Furthermore those other people are often more meta-rational than a lot of professional economists.

Even very simple problems can be quite hard, such as why nominal wages are sometimes sticky or why particular markets don’t always clear, in the absence of legal impediment.  Why doesn’t the restaurant charge more on a Saturday night?  You can imagine how hard the hard problems are, such as what level of public expenditure is consistent with an ongoing and workable democratic equilibrium.

Putting aside agreement and ideology, and just focusing on how one understands an issue, I’ll take my favorite non-Ph.d. bloggers over most professional economists, six out of seven days a week.  Not to estimate a coefficient, but to judge public policy, thereby integrating and evaluating broad bodies of knowledge?  It’s not even close.

Ryan Avent at Free Exchange at The Economist

Atrios:

I got bored pretty quickly with that essay, a poorly written combination of “people I agree with are smart, people I disagree with are stupid” and “elites know what they’re doing so shut up Shut Up SHUT UP SHUT UP SHUT UP SHUT UP.”

There’s little reason to believe the high priests at the Fed had any clue what they were doing as the housing bubble was happening. More than that, there’s plenty of reason to believe that they are much more concerned with inflation than unemployment, and millions will continue to suffer because of it.

Economics provides a framework for thinking about certain problems, but there’s rarely any one “right” answer. Too often the existence of tradeoffs are unacknowledged or completely ignored. If the priests knew what they were doing we wouldn’t have 9.7% unemployment. They, uh, failed.

Mike Konczal at Rortybomb:

Never, and I mean never, during the financial crisis, where we’d leave work on Friday and wonder whether or not the world would collapse during that weekend or what kind of market we’d walk into on Monday, did I think “man I wish there were more academic economists around.” Academic economists had very little language with which to describe the crisis. Most of our narratives come straight from journalism or sociology. There are no “toxic assets” in economics, that evocative description comes to us from business world and journalism. Same with the culture and pitfalls of high mathematical finance, math predicated on the efficient markets hypothesis. Even now it feels kind of sad to see them try and shoehorn the entire financial crisis into agency problems. The last time we had one of these it changed economics completely with the Keynesian revolution. I am really rooting for INET to change some paradigms, but it’s going to be an uphill battle. You can barely move old-school Keynesian thought into academia, and I can easily see the journals publishing as if this crisis was just us “forgetting” some technology.

I think he took down the essay, but he mentioned how bloggers who haven’t taken the first year of Economics PhD coursework, and passed the prelim exam, shouldn’t be writing. I think I’ve pieced together the first year between some coursework and self-study, and here are my thoughts: My very first economics class ever was auditing a graduate macroeconomics class where we went through the Lucas/Stokey “Recursive Methods in Economic Dynamics” and Ljungqvist and Sargent “Recursive Macroeconomic Theory.” I still remember asking my classmates “no seriously, this isn’t what macroeconomics is, is it?” It was like they were training to be electrical engineers, but could do no actual engineering. I still am terrified of what macro graduate students are cooking.

And speaking as someone who has taken graduate coursework in “continental philosophy”, and been walked through the big hits of structural anthropology, Hegelian marxism and Freudian feminism, that graduate macroeconomics class was by far the most ideologically indoctrinating class I’ve ever seen. By a mile. There was like two weeks where the class just copied equations that said, if you speak math, “unemployment insurance makes people weak and slothful” over and over again. Hijacking poor Richard Bellman, the defining metaphor was that observation that if something is on an optimal path any subsection is also an optimal path, so government just needs to get out of the way as the macroeconomy is optimal absent absurdly defined shocks and our 9.6% unemployment is clearly optimal. (An unfair description perhaps, but I wasn’t an actual student. This is a better, though mathy, take on the problems.)

Will Wilkinson:

While I agree with Athreya that economics is very hard, it is not so hard to understand why it is so hard. His argument for why it is so hard –economics is full of phenomena ”pathologically riddled by dynamic considerations and feedback effects”– sounds to my ear like an argument for the unreliability of pathologically oversimplified economic models, and for the proposition that economists will more often than not fail to converge on a consensus position on which the rest of us can rely.

Economics is a grab bag of theories,  just like psychology, sociology, biology, and so on. Any intelligent person with a taste for abstraction and some degree of critical acuity can perfectly well grasp, explain, even cogently criticize most scientific theories. When it comes to formal training, I find that the rigorous standards of argumentation taught in good philosophy programs are useful generally, and certainly have enabled me to detect and explain defects in the arguments of even highly esteemed economists. More specifically, a solid background in the philosophy of science is especially useful when it comes to explaining why many economic theories fail to meet the basic standards of adequate science. Most economists, sad to say, have a woefully poor grasp of the ways the idealized assumptions of their models affect the relevance of those models to the explanation of the real economy and the evaluation of economic policy. And here we arrive at the real the issue: economic policy and who governs.

It seems to have escaped Athreya that this here country is a liberal democracy, and not some kind of bloated Singapore. His response to worries about the rule of experts seems to be that there is no reason to worry because of peer review. Yet as far as I can tell, there is no reason at all to believe that academic peer review in economics favors work relevant to policymaking in the real, embodied political economy as opposed to clever mathematical accounts of phenomena in fictional worlds that bear at best some tenuous structural similarities to this world. I guess it’s not all that surprising when someone who labors inside a technocratic institution with limited democratic accountability fails to wonder whether technocracy on average delivers better policy than democracy. (I don’t know, but I wonder!) And it’s not all that surprising that he would assume that free and open public discussion of economic policy by amateurs threatens to undermine the authority of quiet experts who, as we all know, have a stellar track record of wrangling professional consensus and truth from topics “pathologically riddled by dynamic considerations and feedback effects.”

Andrew Leonard at Salon:

The stupidest part of Athreya’s essay is its title: “Economics is Hard,” which automatically summons up the memory of Teen Talk Barbie’s “Math class is tough” utterance. (Sadly, Wikipedia tells me that Barbie never actually said “math is hard,” and call me a crazy mob-trusting fool, but I’m going to go with the group mind fact check on this one.) The reason why many women were upset with Teen Talk Barbie was obvious: It played into stereotypes that assumed women just couldn’t do the math. So why even bother try?

I will be the first to acknowledge that I stumble flat on my face when I hit the math sections included in cutting-edge economic theory. But that doesn’t mean I am discouraged from trying to learn more, an important part of which means learning who to trust in the cacophony of econoblogospheric debate. Whose articulations of the problem more closely resemble reality, and resonate with history? Who is best able to take the economic data of the day and slot it into a narrative that makes sense? Who is obviously a cynical, ideologically shuttered fool? I marvel every day at the power of the Internet to put me in the middle of conversations between trained economists and a vast universe of interpreters and filters. I once called the econoblogosphere an ongoing graduate-level seminar in economics, open to everyone, and see no reason to back off on that now. Sure, the democratization of information means that there is a lot of silliness out there — Sturgeon’s 90 percent of everything is crap law undoubtedly applies to Internet discussions of economics.

But pay enough attention, do your homework, and you will find yourself more able to educate your more thoroughly on topics relevant to the pressing matters of the moment than ever before.

The good stuff floats to the top. That, I fear, is not likely to be the fate of “Economics is Hard.”

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1 Comment

Filed under Economics, New Media

One response to “Economics Is Hard And Then You Die

  1. Economics affects everybody. Therefore, everybody’s opinion should be respected, whether one agrees with it or not. We non-economists may not have the preferred training professional economists have, but economics is a subject which can be substantially understood through reading and benefits tremendously through debating and discussing. It does nobody any good for economics to be reserved only for the most qualified, as it is much of the time a matter of opinion, not purely scientific.

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